Distributional Effects of Taxation in Ethiopia: Evidence from Household-Level Data

Vollständiger Abstract

Worum geht es in dieser Arbeit?

This paper examines the distributional impact of taxation in Ethiopia using household-level data from selected metropolitan cities, with a focus on effective tax rates (ETRs) and inequality measures. The analysis applies a consumption-based tax incidence approach combined with personal income taxation to assess the progressivity of the tax system across the distribution. The results indicate that while the tax system exhibits partial progressivity across lower and middle-income groups, it becomes regressive at the top, with effective tax rates declining for the highest decile. The estimated Gini coefficient of approximately 0.50 reflects a moderate to high level of inequality, and the minimal reduction in inequality after taxation suggests a limited redistributive effect. Overall, the findings reveal structural limitations in the current tax system, particularly weak taxation of high-income households, reliance on indirect taxes, and compliance challenges, which constrain its redistributive capacity. The study highlights the need for policy reforms aimed at strengthening progressivity, improving tax compliance, and enhancing the overall equity of the fiscal system.